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LGT Navigator: Delta variant puts stock markets under increasing pressure

July 9, 2021

Fears of an uncontrolled spread of the delta variant of the coronavirus are increasingly weighing on the mood on the capital markets. Particularly in Europe, the stock indices had to cope with sometimes heavy losses. This was just at the time of the ECB's announcement that it would allow higher inflation in the future and tolerate a temporary overshooting – similar to the Fed's policy.

Delta variant puts stock markets under increasing pressure

Increased fears of a rapid spread of the Corona Delta variant caused a brief wave of heavy selling in Europe. The announcement of the European Central Bank's (ECB) strategy adjustment, which gives it flexibility to stick to its expansionary monetary policy, also failed to inspire the stock markets at first. The European benchmark index Euro STOXX 50 went out of the day's business with a loss of -2.13% at 3,991.66 points. The picture was similar on the other European stock exchanges. On the New York Stock Exchange, the indices followed the negative guidance from Europe. The Dow Jones Industrial lost in the meantime almost -1.5% and then closed at 34,421.93 points (-0.75%). The market-wide S&P 500 fell by -0.86% to 4,320.82 points and the tech selection index Nasdaq 100 ended Thursday -0.6% lower at 14,722.14 points. At the same time, the yield on 10-year US Treasury bonds fell back to 1.25%, its lowest level in five months.

In Asia, the stock markets show this morning predominantly a negative trend. In Tokyo, the 225-value Nikkei index, against the backdrop of the first Olympic “ghost games”, temporarily fell by about -2%, closing -0.86% lower.

ECB strategy adjustment: More flexible inflation target and increased climate protection

As part of the strategy review, the European Central Bank (ECB) decided to raise its inflation target and tolerate a limited overshooting of the target. In the medium term, the ECB wants to target an inflation rate of 2%, with a “symmetric target that could imply a temporary period in which inflation is moderately above the target.” Previously, the wording was “below but close to 2% over the medium term.” While European equity indices came under pressure, the euro benefited and the yield on German ten-year government bonds reached a three-month low of -0.34%. Another important point in the ECB's strategy adjustment is climate protection. The ECB will also increasingly incorporate aspects of climate protection into its monetary policy operations. According to ECB President Christine Lagarde, for example, issuers of corporate bonds that the ECB accepts or buys as repo collateral will have to provide information on the sustainability of the business model.

Bank of Japan likely to downgrade its economic forecasts

Japan's central bank is likely to lower its growth outlook at the end of next week. Against the backdrop of the renewed emergency in the capital Tokyo due to rising Covid-19 infection figures and a slow vaccination campaign, the anticipated recovery in the world's third-largest economy is likely to be weaker. Most recently, the Bank of Japan forecast GDP growth of +4.0% for the fiscal year ending March 2022. At the same time, the central bank may revise its consumer inflation forecast for this fiscal year upward due to higher energy costs.

Economic Indicators July 9

MEZ Country Indicator Last period
08:00 UK Industrial Production (May, m/m) -1.3%
08:45 FR Industrial Production (May, m/m) -0.1%
10:00 IT Industrial Production (May, m/m) +1.8%
12:00 EZ ECB President Lagarde speech


Earnings Calender July 13

Country Company Period
AUT Telekom Austria Q2 
US JPMorgan Chase Q2
US Goldman Sachs Q2
US PepsiCo Q2


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Source: LGT Bank (Switzerland) Ltd.

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